Microsoft loses battle of the piggybacking passwords

The $140m activation code

Microsoft has been told to fork over $140m because Windows XP and certain versions of Microsoft Office require more than one activation code.

You see, there are patents on the use of more than one activation code, and they're held by a clever company in Michigan that has successfully sued the bejesus out of the Redmond software giant.

On November 16, The Associated Pressreports, a federal appeals court ordered Microsoft to unload $140m on the tiny z4 Technologies, upholding the decision of a lower court.

In 2004, z4 Technologies brought suit against both Microsoft and Autodesk, accusing the two software makers violating its patents on software anti-piracy methods. These US patents - 6,044,471 and 6,785,825 - describe technologies that attempt to secure software tools using not one but two activation codes. And maybe more.

One method involves "associating a series of passwords with the software for each authorized user prior to distribution of the software, requiring entry of a first password upon first use of the software; and subsequently requiring entry of another password to continue using the software."

In April 2006, a federal jury in the Eastern District of Texas - where else? - decided that Microsoft and Autodesk were indeed guilty of patent infringement, ordering a $115m payment from one and $18m from the other. Then, in August of the same year, after Judge Leonard Davies accused Microsoft of withholding evidence in the case, the jury ordered Redmond to pay out another $25m for "willfully" infringing the patents.

Microsoft appealed, claiming the patents were less than valid, but the US Court of Appeals for the Federal Circuit has now upheld the lower court's decision in full.

As Microsoft spokesperson David Bowermaster told The AP, this will not result in any changes to Windows or Office. Last year, Microsoft promised that any z4-infringing technologies would be removed from Windows Vista and Office 2007, and the district court chose not to slap an injunction on Windows XP or older versions of Office.

Meanwhile, Bowermaster told us that Microsoft still believes that it's in the right. "The facts in this case clearly show that Microsoft developed its own product activation technology well before z4 Technologies did, and that Microsoft’s technology is different," Bowermaster said.

"The Federal Circuit acknowledged that the claim construction and jury instructions used by the lower court were wrong, as Microsoft argued, but applied the wrong standard of review to uphold the verdict," he continued. "If the court had applied the correct standard, the verdict in favor of z4 would have been reversed."

Does that mean that Microsoft will continue to fight this thing? We wouldn't be surprised. ®